The pace of economic revival in India is robust, of course, it has hit a speedbump with Russia waging a war with Ukraine and raging a storm across the world, but nothing can derail the rebound, believes Harshad Chetanwala, Co-founder of MyWealthGrowth.com.
“One of the best ways to keep such worry (Ukraine-Russia crisis) away is by building a dynamic portfolio based on macro variables,” he shares in an interaction with Moneycontrol.
The demand scenario is strong, though there’s pressure on margins for companies and, Chetanwala believes, it would remain for some more time due to the present situation.
Excerpts from the interaction:
Do you think the first half of FY23 will be challenging on a fundamental basis, especially after a spike in commodity prices?
The prices of crude oil, coal, nickel and other commodities have increased sharply in the last few weeks. The global uncertainty due to geopolitical issues is likely to continue for now. The existing supply constraints could also get stretched for some more time. Having said that we believe the demand in India continues to be strong, however, the margin pressure on companies would remain for some more time due to the present situation.
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How would you advise investors to position their portfolios as ultra-low interest rate environment seems to be behind us?
The interest rates are expected to rise. It is better to continue to remain invested in the shorter side of maturity. The yield on debt investment has slowly started increasing and being in the low maturity duration debt options will help investors to move into medium and long duration as the interest rate starts increasing in the coming months.
Do you think the government will pass through the oil price spike or absorb it? This is more important after the state elections.
One of the biggest concerns for India in the near term is inflation. If the government decides to absorb the oil price spike and does not pass, it could increase the pressure on the fiscal deficit. Alternatively, if they decide to increase the prices and pass it completely, it could lead to high inflation. We believe at some stage the government will have to raise fuel prices, but they may take a middle path where they will absorb some and pass the rest. This will help the government to reduce the overall impact as tax collections are buoyant and they have some capacity to partially absorb the price spike at this stage.
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What are the sectors to bet on especially after the recent turmoil? What is your pecking order?
There are quite a few companies where the valuations are appearing attractive from the investment perspective at this stage. Banking and auto sectors have corrected a lot recently and one can consider them at this stage in our view.
The auto industry was reviving well but it got hit again due to the sharp rise in crude oil prices. Once the conflict start getting resolved and oil prices come back to the acceptable mark, the auto sector will regain its pace. However, in the near term, if the oil prices and input costs remain high, the demand could continue to be disrupted for a while.
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Large banks are well placed in terms of quality of assets and at the same time they have worked positively on their balance sheets. Their NPAs (non-performing assets) have reduced over the last few years and they were waiting for credit growth to resume.
Has the stagflation risk discounted by the market?
While inflation continues to remain high, the concerns are much lesser from an economic revival and employment rate perspective. The unemployment rate did spike a bit in February but it was primarily due to an increase in the rural region which is seasonal.
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The rural unemployment rate could reduce when the sowing season restarts in the coming months. Urban unemployment at the same time has been steady and is expected to come down subsequently.
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